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Home ownership strongly associated with unemployment Watch

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    In the UK, unlike many other European countries, everyone seems to have an obsession with property ownership. We have politicians falling over themselves to subsidise first-time-buyers and consumers desperate to get on the housing ladder despite the risks of buying with a small deposit.

    Two economics professors have just published a fascinating working paper exploring the link between property ownership and unemployment in the United States: http://www.piie.com/publications/wp/wp13-3.pdf. The conclusion is that there is a strong relationship between increases in home-ownership rates and later rises in unemployment, with a doubling of the home-ownership rate leading to a doubling in unemployment. It also found that there is a weak relationship between increasing rates of home-ownership and a reduction in business formation rates (perhaps due to calls for stricter zoning laws and general NIMBYism).

    Obviously it is very difficult to prove that correlation equals causation, but I can certainly see why there would be a connection between increases in home-ownership and inefficient labour markets.

    What does TSR think? Is it time to challenge the historic view that everyone should buy a house ASAP?
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    I've long given up on buying one, I just can't earn enough.
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    I'm a bit unsure with this study.

    Agreed, home ownership has gone up, but also, there have been other changes in Socirty.

    1) A more transient work force. People don't stay in jobs as long.
    2) Product life cycles are reducing. The business world is a lot more fast paced now than it's ever been.


    Hell, you could even say that the reduction of church attendance has an impact.
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    I would have thought it would be completely opposite - that only those with stable jobs would be able to get the mortgage to buy a house, while those who were regularly unemployed would have no choice but to rent or live in a council house.
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    But the UK has relatively low unemployment rates compared to most of the rest of Europe and indeed in recent British history. On the face of it I find such a claim highly dubious.
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    It's notable regarding this that a wealth report i read a few months ago actually asserted that high London house prices and the subsequent increases in renting were a good thing because people put their money into more productive assets than houses (whatever these assets may be).
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    I have never understood the fascination with home ownership...
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    Well giving that lots of people buying houses leads to a housing boom which is inevitably going to crash it some point you can understand why this increase in home ownership during in the housing boom leads to higher unemployment when the housing bust comes. Hardly revolutionary thinking.
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    Govt shouldn't subsidise. Young people should live with parents until they can afford it.

    (Original post by InnerTemple)
    I have never understood the fascination with home ownership...
    What would be your alternative? Communal accommodation?
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    I consider home ownership essential.
    Rent is dead money.
    At least when you pay a mortgage you will at some point see a proportion of that money back.
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    (Original post by InnerTemple)
    I have never understood the fascination with home ownership...
    Money.
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    (Original post by JC.)
    I consider home ownership essential.
    Rent is dead money.
    At least when you pay a mortgage you will at some point see a proportion of that money back.
    Mortgage interest and home maintenance are 'dead money' two. Also dead is the massive portion of your net worth tied up in an asset that historically has been fairly close in performance to stocks, even with the spending on improvements. It is also the national average, including the current London bubble. The only thing houses have going for them(financially) is the subsidies and tax breaks the government gives owners.

    If you want to own your own home, and can afford it, go for it. But it's not some wealth building silver bullet.
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    Ok so there is a correlation but as a statistician there are to put it simply 'good'correlations and bad 'correlations' for instance smoking causes lung cancer is a good correlation , going to the newsagents causes lung cancer is a bad correlation.

    Let us assume though that the evidence is strong for some kind of cause and effect let us try and model it.It is stated that there is strength of association this points towards causation.
    A dose response relationship also points towards causation and this is also stated.COnsistency of the association is not stated ie that there are more studies in this area to be done before Bradford Hills criteria for causation are satisfied.
    There are other criteria which must be satisfied before we can get close to saying that there is cause and effect.Temporality i.e the cause procedes the effect this is self evident.Economic plausibility must be present and lack of conflict with our understanding of economis.
    So economic plausibility and lack of conflict with our understanding of economics should be what this thread is about.
    What plausible mechanisms for a rise in home ownership leading to a rise in unemployment could there be. It is a very tough question
    what a scientist would do now is to create a model and see if it predicts the future. WIth such a complex issue in practice several models are made and the best one selected as the 'truth' until we know better.
    So a possible model

    house prices rise faster than the economy so in searching for better jobs all the time to cope with rising house prices there is a neglect of the less well paid jobs necessary to sustain an industry competition then dictates that these jobs' rise in price' meaning that fewer jobs can be afforded to be paid. As an example look at manual labour jobs in the 40s compared to this decade. the net result could mean increase in home ownership leading to rises in unemployment less jobs become available. That is one complicated model and is probably a bad one.
    Let us look for a simpler one. Can anybody do this?
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    (Original post by InnerTemple)
    I have never understood the fascination with home ownership...
    I have a couple theories:
    The English "castle" mentality
    The fact that they are so expensive - status symbol
    Home ownership is a sign of being in the "middle class"
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    (Original post by peter12345)
    I have a couple theories:
    The English "castle" mentality
    The fact that they are so expensive - status symbol
    Home ownership is a sign of being in the "middle class"
    Plus the 'rent is dead money' and 'why pay for someone else's asset' ...

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    (Original post by zippyRN)
    Plus the 'rent is dead money' and 'why pay for someone else's asset' ...

    Posted from TSR Mobile
    I didn't include that because I was trying to explain why it's so much of a big thing in this country alone. Your point is an issue everywhere.
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    Well this is rather amusing. The elite want a mobile well educated work force whilst they own most of the assets around us. Oh it would be lovely if you moved around like little mice renting things off us whilst we exploit your labor and charge you rent. I wouldn't pay too much attention to these "studies". Even those that have moved to London for jobs, only 17% own their properties whilst the rest make their elite landlords richer.
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    I think we are getting off the point of the thread if there is a causation of unemployment from home ownership then surely the thing to do is find it(or disprove it) and then come up with legislation that make home owning less appealing and renting more appealling.
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    I only had a quick skim of the paper and think that the main points make sense. I would say that the biggest problem with high home ownership that I never saw mentioned in the study was that when interest rates start to rise it hits home owners far higher than renters.

    This gives them a lot less money to spend as they will always try and keep up the mortgage payments as the thought of selling into a falling or slowing market doesn't appeal. This means that there is far less money being put back into the economy and will lead to a recession and thus unemployment.
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    [QUOTE=punani;42666896.

    This gives them a lot less money to spend as they will always try and keep up the mortgage payments as the thought of selling into a falling or slowing market doesn't appeal. This means that there is far less money being put back into the economy and will lead to a recession and thus unemployment.[/QUOTE]

    I like this model it is simpler and maybe workable.
 
 
 
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